Myer: AGM 2016
Recommendation
If marketing was the only thing that mattered for retailers, then Myer's sales would be roaring. The company's annual general meeting was a slick production but, for the record, the new format made for a refreshing change (you can watch the webcast online if you're interested).
The company's directors sat in comfy armchairs rather than behind a forbidding desk and, with the chairman Paul McClintock interviewing them Michael Parkinson-style, each outlined their take on the New Myer strategy. The meeting not only humanised the directors, but gave shareholders a feel for their expertise. More companies should follow the format if they want shareholders to understand what directors bring to their roles.
Of course, Myer's sales aren't roaring, with the company reporting same-store sales growth of just 1.6% for the first quarter of 2017. But it was again pleasing to see same-store sales growth at flagship and premium stores – where Myer is devoting most attention – at 2.8% over the same period.
Key Points
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Sales growth better than expected
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Further evidence New Myer is working
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Excellent annual meeting format
It's a measure of just how low expectations were that Myer's share price jumped 14% on the day. Most retailers are still reporting difficult conditions, which follows on from our comments last month in Myer upgraded. Shareholders were obviously relieved that Myer is holding its own, while the fact that same-store sales growth exceeded that of David Jones helped lift excitement levels.
As managing director Richard Umbers said, though, the company is just one year into a five-year turnaround. It's still early days, but the meeting gave a strong sense that a lot had been achieved over that first year. We're now the most comfortable we've been that management can make the New Myer turnaround – first outlined in Is Myer still a pariah? – work.
The first major store to be refurbished as part of the New Myer strategy – at Warringah Mall on Sydney's Northern Beaches – also opened last week. As McClintock said at the meeting, the store ‘reinforced my confidence in Richard and the rest of the management team and their ability to execute'.
Small but perfectly formed?
By all accounts, Myer Warringah is a smaller but much, much better store. Look out for colleague Andrew Legget's blog piece on his store visit (he's keen, having already been twice since it opened). If you've visited, let us know your thoughts in the comments section below.
Myer shares continue to look reasonable value, with expectations that the company will report earnings per share of around 9-10 cents this financial year. We currently expect that earnings growth should accelerate into the 2018 year. On a historical free cash flow yield of 10%, the stock remains worth buying.
All that said, Myer's ultimate earnings performance over the next four years will depend to some extent on consumer confidence. This Christmas will be important, but so will the one after that – and the one after that. Our thesis could be demolished by a recession or management mistake, so we're sticking with the speculative tag.
As always, we continue to recommend you buy on bad news but wouldn't be surprised if sentiment towards the stock improves in the short-term as analysts become more comfortable with the New Myer strategy. We're not far away from a downgrade to Hold again but the recommendation remains SPECULATIVE BUY.